In a recently filed amicus brief, the Securities Industry Financial Markets Association (“SIFMA”), which represents the interests of securities firms, banks, and asset managers, urged the Eleventh Circuit Court of Appeals to affirm a lower court’s decision to apply the Supreme Court’s holding in SEC v. Gabelli, 113 S.Ct. 1216 (2013) to SEC enforcement actions seeking equitable relief.

We previously blogged about the underlying decision in SEC v. Graham, No. 13-10011, 2014 WL 1891418 (S.D. Fla. May 12, 2014), in which the U.S. District Court for the Southern District of Florida dismissed a case involving an allegedly $300 million Ponzi scheme on statute of limitations grounds. In Graham, the court ruled that it lacked subject matter jurisdiction over the SEC’s claims against former real estate executives because the five-year statute of limitations in 28 U.S.C. § 2462 had run. The court reasoned that the Supreme Court’s decision in Gabelli—which held that the five-year statute of limitations period for civil penalties begins to run when the fraud occurs, not when it is discovered—applied when the SEC sought equitable relief, including injunctions and disgorgement, not only when it sought civil penalties. After the court dismissed the case, the SEC appealed the ruling to the Eleventh Circuit.

SIFMA’s amicus brief raises several legal- and policy-based arguments encouraging the Eleventh Circuit to affirm the dismissal in Graham. For instance, SIFMA argued that Section 2462, by its plain language, does not limit the statute of limitations to civil penalties and that Congress “has reserved infinite limitations periods for heinous criminal conduct, not civil securities-law violations.” SIFMA further pointed out that “[e]xtending Gabelli to apply a single limitations period to SEC enforcement actions seeking the relief sought here would honor the need for uniformity, certainty, predictability, and fair notice in the securities laws.”

SIFMA also reasoned that allowing the SEC unfettered ability to pursue enforcement actions without any time limitation is simply bad policy because it would actually weaken enforcement of the securities laws. Given that evidence often becomes stale and witnesses can disappear in the years after a violation occurs, “imposing a clear and firm end date for enforcement actions—whether seeking a civil penalty or the relief sought here—encourages the SEC to focus its resources on pursuing fresh cases that, if promptly investigated, might prevent investor losses.” The SEC’s vast enforcement resources, SIMFA argued, only strengthen the argument that the Commission should be forced to bring such actions in a timely manner. The uncertainty that results from the threat of some future enforcement action causes harm to both business and investors. By contrast, placing a time limit on all enforcement actions is good for the industry and the SEC itself, the association urged.